Pay with Cash, Debit or Credit?

When it comes to managing your money wisely, it’s not just about what you spend your money on, but also how you choose to pay. For example, paying with plastic can help you track your purchases, but it might also make it easier to spend without thinking. With all of the options for making purchases and payments, it can be difficult to know which payment method to choose and if there’s a “best” way to pay for things. The following pros and cons can help you determine which payment methods best suit your needs.

Paying with cash

Pros: Using cash can be a great way to avoid overspending. You can choose exactly how much you’re willing to spend and carry that amount with you, then stop spending when your wallet is empty. Cash is also essential if you shop at businesses that are cash-only or have credit card minimums. (Legally, that minimum cannot be more than $10.)

Cons: For some people, cash can “burn a hole” in their wallets: The temptation can lead to undesired spending. In addition, if cash is stolen, it’s likely gone for good. If these factors are a concern, consider using a debit or credit card, which in most cases offer you protection against fraudulent use.

Paying by credit card

Pros: For certain purchases, credit cards may be convenient or even necessary. For some purchases, you may be required to use a card—things like booking a hotel room or rental car in advance. Plus, a growing number of transactions that once required cash, such as flea market purchases or snacks from a food truck, can now be made via credit card, thanks to the growing popularity of mobile card readers.

Beyond convenience, responsible use of a credit card can be a safe and easy way to build your credit. In addition, many credit cards offer rewards programs that allow you to earn points that are redeemable for things like travel and merchandise; other rewards programs offer you cash back. You’re also protected if your credit card is stolen. Federal law limits your liability in fraudulent purchases, and some cards come with additional liability protection. Plus, an increasing number of credit cards feature microchips, the new global standard in card security. This chip technology makes it harder to steal your information.

Cons: Carrying a balance on your credit card will result in interest charges and can harm your credit score if the balance gets too big. If you can’t pay in full, aim to pay more than the minimum whenever possible.

Choosing debit

Pros: Like credit cards, debit cards can be used to pay for things in cases where cash is not accepted. Debit cards also provide easy record keeping. The money you spend comes directly out of your checking account, making it a great way to avoid spending more money than you have available.

Like with credit cards, federal law protects your liability for fraudulent purchases if your card is stolen, though the specific protections between credit and debit cards are different. Some banks allow you to lock your debit card if it gets lost or stolen. Look into your bank’s fraud liability protection program so you have a good understanding of your debit card’s security. Like credit cards, a growing number of debit cards feature microchip technology for an additional layer of security.

Cons: You’ll want to be aware of your checking account balance before you use your debit card. If you try to spend more than you have, your purchase may be declined or the bank may charge you an overdraft fee. (To help with this, consider using mobile or online banking to set up email or text alerts when your balance drops below a certain level.) Be sure to check your bank’s policy so you are aware of any potential fees you could incur by spending more than you have available in your account.

When paying via debit card, it’s also important to be mindful that some businesses will place a hold on your account for more than the purchase amount—gas stations and hotels commonly do this, for example. When the purchase clears, the held funds are released, but you’ll want to make sure that you have enough money in your account to cover any holds.

New payment options

These days, you may be able to pay for a purchase using your smartphone—some phones allow you to buy things by tapping your phone on a terminal at checkout. Another popular option is payment via apps, digital wallets or other programs. These payment methods usually link to your credit card, debit card or your bank account. Learn more about Bank of America and digital wallets.

When figuring out which payment method makes sense for you, consider your own shopping habits as well as the transaction at hand. Knowing the pros and cons of different payment options can help you manage your spending and maximize your budget’s potential.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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